Occupational Licensing Versus the American Dream

Imagine: You’re one of the 6.1 million unemployed Americans. Try as you might, you can’t find a job. But you’ve always been great at something—cutting hair, giving manicures, or maybe hanging drywall—so great, in fact, that you reckon you could actually make some real money doing it. What’s the first thing you do?

If your answer was something other than, “Find out how to obtain the state’s permission,” you’re in for a surprise.

A shocking amount of occupations require workers to seek permission from the government before they can legally practice. This includes not just the obvious, like doctors and lawyers, whose services, if rendered inadequately, might do consumers life-threatening harm, but also barbers, auctioneers, locksmiths, and interior designers.

This phenomenon is known as occupational licensing. State governments set up barriers to entry for certain occupations, ostensibly to the benefit and protection of consumers. They range from the onerous—years of education and thousands of dollars in fees—to trivialities like registering in a government database. At their most extreme, such regulations make work without a permit illegal.

As the United States transitioned from a manufacturing to a service-based economy, occupational licensing filled the “rules void” left by the ebb of labor unions. In the past six decades, the share of jobs requiring some form of license has soared, going from five percent in the 1950s to around 30 percent today. Put another way: over a quarter of today’s workforce requires government permission to earn a living.

There’s little proof that licensing does what it’s supposed to. For one, the potential impact to public safety seems wholly incidental to the burden of compliance for a given job. In most states, it takes 12 times as long to become a licensed barber as an EMT. In a 2015 Brookings Institution paper, University of Minnesota Professor Morris Kleiner, who has written extensively on the subject, states: “…economic studies have demonstrated far more cases where occupational licensing has reduced employment and increased prices and wages of licensed workers than where it has improved the quality and safety of services.”

Ironically, the presence of strict licensing regulations also seems to encourage consumers to seek lower-quality services—sometimes at great personal risk. When prices are high or labor is scarce, consumers take a DIY approach or forego services entirely. A 1981 study on the effects of occupational licensing found evidence for this in the form of a negative correlation between electricians per capita and accidental electrocutions.

A less morbid, but perhaps more salient, observation is that licensing often creates burdens that are unequally borne. Licensing requirements make it difficult for immigrants to work. In many states, anyone with a criminal conviction can be outright denied one, regardless of the conviction’s relevance to their aspirations. These policies, coupled with the potential costs of money and time, can make it harder for poorer people, in particular, to find work.

But surely, you might say, there must be some benefit to licensing. And technically, you’d be right.

Excessive licensing requirements are a huge boon to licensed workers. They restrict the supply of available labor in an occupation, limiting competition and in some cases raising wages. There’s little doubt that occupational licensing, often the result of industry lobbying, functions mainly as a form of protectionism. A 1975 Department of Labor study found a positive correlation between the rates of unemployment and failures on licensing exams.

Yet even licensed workers can’t escape the insanity unscathed. Because licenses don’t transfer from state to state; workers whose livelihoods depend on having a license face limited mobility, which ultimately hurts their earning potential.

Though licensure reform is typically thought of as a libertarian fascination—the libertarian-leaning law firm Institute for Justice literally owns occupationallicensing.com—it also has the attention of more mainstream political thinkers. The Obama Administration released a report in 2015 outlining suggestions on how the states might ease the burden of occupational licensing, and in January of this year, Labor Secretary Alexander Acosta made a similar call for reform.

Thankfully, there seems to be some real momentum on this issue. According to the Institute for Justice, 15 states have reformed licensing laws to “make it easier for ex-offenders to work in state-licensed fields” since 2015. Louisiana and Nebraska both made some big changes this year as well. That’s a great start, but there’s still much work to be done.

This article originally appeared on Merion West


Insurance Coverage Numbers Are Important, But Not All-Important

Whether you’re into this sort of thing or not, you’ve probably been hearing a lot about healthcare policy these days. Public debate has roiled as Republican lawmakers attempt to make good on their seven-year promise to repeal and replace the Affordable Care Act (ACA). As the debate rages on, one metric in particular appears to hold outsize importance for the American people: the number of Americans covered by health insurance.

Analysis by the Congressional Budget Office, which showed that 14 million more Americans could lose coverage by 2018 under the Republican replacement, caused intense public outcry and was frequently cited as a rationale for not abandoning the ACA. There is immense political pressure not to take actions that will lead to a large loss of coverage.

But here’s the thing: the relevant metric by which to judge Obamacare isn’t insurance coverage numbers. To do so is to move the goal posts and place undue importance on a number that might not be as significant as we imagine.

The ultimate point of health insurance, and the implied rationale for manipulating insurance markets to cover sicker people, is that people will use insurance as a means by which to improve their health, not just carry a plastic card in their wallets.

Health Insurance ≠ Health

The impulse to use insurance coverage as a proxy for health is misguided but understandable. For one thing, it’s a simple, single number that has dropped precipitously since the implementation of the ACA; that makes it a great marketing piece for supporters. For another, health insurance is the mechanism by which most of us pay for most of our healthcare.

And yet in 2015 the uninsured rate fell to 10.5% (down from 16.4% in 2005) while age-adjusted mortality increased for the first time in a decade.

It turns out a nominal increase in the amount of insured Americans doesn’t necessarily translate into improved health outcomes for those individuals. A newly released paper from the National Bureau of Economic Research (NBER) finds that while the ACA has improved access to healthcare, “no statistically significant effects on risky behaviors or self-assessed health” can be detected among the population (beyond a slight uptick in self-reported health in patients over 65).

These results are consistent with other studies, like the Oregon Medicaid Experiment, which found no improvement in patients’ blood pressure, cholesterol, or cardiovascular risk after enrolling them in medicaid, even though they were far more likely to see a doctor. There were, however, some notable-but-mild psychic benefits, such as a reduction in depression and stress in enrollees.

In short, despite gains in coverage, we haven’t much improved the physical health of the average American, which is ostensibly the objective of the ACA.

Why Not?

To be fair, the ACA is relatively young; most of its provisions didn’t go into effect until 2014. It may well be that more time needs to pass before we start to see a positive effect on people’s health. But there are a few reasons to think those health benefits may never materialize–at least, not to a great extent.

A lot of what plagues modern Americans (especially the poorest Americans) has more to do with behavior and environment than access to a doctor. Health insurance can be a lifesaver if you need help paying for antiretroviral medication, but it won’t stop you from living in a neighborhood with a high rate of violent crime. It won’t make you exercise, or change your diet, or stop you from smoking. It won’t force you to take your medicine or stop you from abusing opioids, and it certainly won’t change how you commute to work (that’s a reference to the rapid increase in traffic deaths in 2015).

Here’s something to consider: A lot of the variables that correlate to health–like income and education–also correlate to the likelihood of having health insurance. If we want healthier Americans, there may be more efficient ways to achieve that than expanding insurance coverage, like improving employment and educational opportunities. Maybe something creative, like Oklahoma City’s quest to become more walker-friendly, could yield better results?

Of course, all things being equal, more insurance coverage is better. But nothing comes without cost, and as a society we want to be sure that benefits justify costs. So far, that’s not clear. This poses an existential question about our current pursuit of universal coverage, and, by extension, the relevance of coverage as a metric for the success of healthcare policy: If insurance isn’t the cure, why are we prescribing it with such zeal?